Regularly reassess preferred approach to regulatory risk. Amend strategies, activities and enforcement actions to reflect changing priorities that result from new and evolving regulatory threats, without diminishing regulatory certainty or impact.

1, 6, 16

3.3

Recognise the compliance record of taxpayers, including using earned autonomy where this is appropriate. Consider all available and relevant data on compliance, including evidence of relevant external verification.

–

Note: There are no specific metrics for measure 3.3, as per the ATO Regulator Performance Framework.

Self-assessment rating: Good

This assessment is based on the results of the metrics relating to each measure and how our actions were proportionate to the regulatory risk being managed.

Summary of metric results

There was a performance improvement in all metrics for this KPI, including the client survey to assess perceptions of our clients as to whether the ATO listens and responds to feedback.

This is a positive result for the KPI. However, we recognise that while Operation Elbrus, the joint operation between the ATO and Australian Federal Police, that became public in May 2017, was an excellent piece of investigative work and collaboration, it raised questions about our integrity, processes and controls.

The Inspector General of Taxation (IGT) was asked by the Senate Economics Reference Committee to review these matters, and we also initiated our own internal reviews.

Activity-based examples

In 2016–17, we continued to refine our strategies and tactics for managing deduction claims, particularly work-related deductions. We undertook over 762,000 compliance activities, including tailored letters, pre-issue reviews, audits, working with large employers, and personal visits to tax agents to improve correct reporting further and address non-compliance.

Errors we commonly see involve over-claiming of rental and work-related expenses. Work-related expenses accounted for around 76% of deductions for individuals. While amounts over-claimed by individuals are relatively small, they are significant when totalled across the population.

We have implemented a streamlined approach to dealing with pay as you go PAYG withholding that provides small businesses with timely and fair outcomes where mistakes have been made. This supports viable small business to meet their obligations in a way they will be able to maintain into the future.

The simpler BAS reduces the amount of GST information required, by simplifying the GST classification of each business transaction to either ‘GST Yes’ or ‘GST No’. Small businesses have previously told us that they struggled with getting the classification of GST transactions right and that it deterred them from taking advantage of accounting software automation options. The simpler BAS is expected to improve accuracy in reporting and reduce compliance costs.

Recognising the significance of the construction industry and the tax issues specific to that sector, we have introduced a number of tailored initiatives during the year. We engage one-on-one with the largest construction groups on their income tax and GST obligations. We work with those same clients to influence positive behaviours with their sub-contractors across their tax obligations, including payment of tax debts. To support the one-on-one engagement approach, we have trialled the use of multi-functional teams to ensure that contact from different parts of the ATO is better coordinated. To prevent potential compliance issues, major new construction developments are identified in real time, and early engagement is offered to resolve any tax issues. Finally, we established a liaison forum this year to promote meaningful relationships with key advisers in the building and construction industry and to provide opportunities for joint approaches to address common issues.

The financial and tax positions of Australian-listed groups are relatively transparent due to the nature of their ownership and governance frameworks. Risks to compliance tend to be around interpretation of tax law and the tax treatment of business transactions. Stronger compliance measures, including new intelligence sources such as country-by-country reporting, are helping us to monitor and assure the tax performance of public and multinational businesses.

The Tax Avoidance Taskforce (established on 1 July 2016) raised $4 billion of additional liabilities against a handful of large businesses and multinationals. We also had strong engagement with companies potentially within the scope of the Multinational Anti-Avoidance Law, with a number of them restructuring to recognise profits in Australia for the first time.

Our key compliance focus for public and multinational businesses is on the correct reporting of taxable income. We are engaging earlier with this group of taxpayers, often before lodgment, and providing them with guidance on arrangements that present a compliance risk.

This increased transparency, together with our robust general anti-avoidance and transfer pricing rules, has given us greater confidence in the tax outcomes being reported in income tax returns.

During 2016–17, we released a range of guidance products aimed at public and multinational businesses, including:

eligible exploration expenditure and the evidence required to substantiate the expenditure

a draft practical compliance guideline on the risks associated with cross-border related-party finance arrangements for comment and consultation to help clients

understand how we rate these risks

make an assessment of their risk rating

clarify to what extent they require greater assurance about their arrangements

an updated Tax risk management and governance review guide, published on 31 January 2017, to help large businesses reduce their tax risk by improving their tax governance and internal controls.

Preventing other taxpayers entering into tax avoidance schemes is a key element of our strategies and has led to a greater emphasis on the use of Taxpayer Alerts. These provide an early warning to taxpayers and their advisers of our concerns about new or emerging transactions, structures and arrangements that may represent a compliance risk.

This year, we identified that 9% of SMSF had failed to meet their regulatory and income tax lodgment obligations for both 2013–14 and 2014–15. Accordingly, we implemented a strategy of differentiated treatments and initial results have seen around 12% of funds taking action to wind up or bring their lodgments up to date.

KPI 4 performance summary

Compliance and monitoring approaches are streamlined and coordinated

The following table shows the measures of good regulatory performance and the related metrics. The results of the metrics and analysis are outlined in the Appendix.

Measure

Description

Metric(s)

4.1

Minimise frequency and impact of requests for information and coordinate with similar processes including those of other regulators.

33

4.2

Tailor information requests and only make when necessary, and only then in a way that minimises compliance costs to taxpayers.

34

4.3

Utilise existing information to limit the reliance on requests to taxpayers and share the information among other regulators, where possible.

13, 35–37

4.4

Base monitoring and inspection approaches on risk and, where possible, take into account the circumstances and operational needs of taxpayers.

38

Self-assessment rating: Good

This assessment is based on the results of the metrics relating to each measure and the examples of how we streamline and coordinate compliance and monitoring approaches.

Summary of metric results

There was a performance improvement in three of the seven metrics for this KPI with two remaining relatively stable and two showing a decline relating to perceptions of our clients.

There has been a significant increase in the use of the Australian Business Register (ABR) by government agencies and the community as demonstrated by the strength of the results. There were also positive results for the number of international information exchanges and in the improvement of our risk analysis and selection processes representing a decline in the number of compliance audits undertaken during 2016–17.

Results show a decline in the perceptions of our clients as to how we are integrating services better with other government agencies and whether we contact them unnecessarily. These results have highlighted the need to continue our focus on tailoring engagement according to circumstances and continuing to increase awareness in how we are working in collaboration with other agencies to integrate services.

Activity-based examples

The ATO uses behavioural insights to make it easier for clients to meet their tax and super obligations.

Some examples of our use of behavioural insights in 2016–17 included:

making it easier for clients to complete their tax return by pre-filling income, salary, dividend and private health insurance details in myTax

helping clients get their work-related expense claims right, with pop-up messages in myTax that let them know when their claims appear out of step with their peers

providing greater certainty for individuals using myTax on the progress in processing their return, via personalised emails and text messages

continuing to help clients pay their debts on time, by sending 560,000 pre-emptive SMS payment reminders for those businesses and individuals unlikely to pay on time or at all, resulting in payments of $800 million

successfully trialling tailored emails to help businesses comply with their reporting and lodgment obligations, enabling their continued eligibility for the deferred GST scheme

successfully trialling tailored emails and phone calls to help businesses who were regularly using an incorrect payment reference number when making payments to the ATO.

For the ATO, data is a strategic resource. We generate, receive and analyse a vast amount of data from individuals, businesses and other organisations, including government agencies, employers and financial services providers. During 2016–17, we received more than 640 million records from third-party providers. We use this data to make it easy for people to participate through personalised pre-fill services. We also match third-party data with our own data holdings to identify those who may not be doing the right thing. More broadly, data and analytics provide the evidence on the health of the tax and superannuation systems and the policy advice we provide to government.

Our priority is to help people to get their tax returns right from the start, rather than conduct reviews and audits to make corrections after the event. Collaboration with third-party data providers, including employers, banks, private health insurance providers and other government agencies, has helped us to pre-fill as much data as we can into tax returns, which minimises errors. Over the 2016–17 year, we pre-filled over 81 million records to assist taxpayers who self-prepare their return or their tax agents to manage tax obligations.

By using data to better understand our clients, we are able to provide a more holistic approach to meeting their needs. Sophisticated methods of data analysis, when applied to the financial accounts of larger taxpayers, enable us to understand complex business structures and provide assurance that they comply with their obligations.

Data is providing us with the facts, relationships, risk profiles and client preferences to support our staff and clients. It is also helping us to develop effective automated processes, including:

using complex analytic models to produce behavioural ‘nudge’ messages in myTax for those whose claims for work-related expenses are inconsistent with people in similar positions

better ways to facilitate payment of debt through using data to understand previous client behaviours

implementation of the Enterprise Client Profile system, which brings together data from various systems to create a whole-of-client view to help us engage with clients in a more personalised way

a new data-indexing system that enables staff to search and access more than 119 million pieces of information, reducing time and increasing consistency in responding to clients.

For our largest 320 privately owned and wealthy groups, we have continued to deploy a relationship management model that provides each group with access to a client manager. This one-on-one service is designed to help us build our understanding of clients, their industry and structures, and supports better engagement with the ATO. It provides private groups with the opportunity to discuss their tax positions prior to returns being lodged, and the tax implications of key transactions as they occur throughout the year. Clients benefit from this approach as it reduces the need for more traditional compliance activity, including reviews and audits, and provides real-time, pre-lodgment certainty. It also gives us greater confidence that the right amount of tax is being paid.

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